Could Loss of Capacity Affect your SMSF?

Could Loss of Capacity Affect your SMSF?

Thinking Ahead: Ensure Your Assets Are Protected!

A self-managed super fund (SMSF) is a private superannuation fund that is run by an individual or appointed trustee. A SMSF is often more suitable for individuals who have larger supers, a breadth of knowledge in finance and extensive knowledge in legal matters. SMSFs operate under the same rules and regulations as ordinary super funds, however, there are more advantages that are associated with privately managing your own accounts.

 These could vary from:

  • Investment control,
  • Greater investment flexibility,
  • Estate planning,
  • Adding value to property &
  • Effective tax management.


Whilst the benefits of SMSF can appeal to many individuals, it’s important to assess the level of risks by delegating yourself as the sole trustee. It’s not something we all like to think about, however, it is your responsibility to plan for the potential of lost capacity.

What is Lost Capacity?

Lost capacity is referred to as memory loss, dementia or debilitating illnesses that could stop you from properly managing your own super fund. Losing capacity without a back-up plan could result in major losses. These could range from the inability to sell or invest at the right time, your superfund falling into a stranger’s hands or even huge tax consequences from a non-complying fund status.


If you haven’t already jumped onto it, here is a list of things you can do to protect your self-managed super fund!


Talk to Your Financial Advisor

The first step to protecting your SMSF is to talk to your financial advisor. You should enquire about the process towards implementing an investment strategy if you lose mental capacity. Gaining professional advice will help you devise a strategy for the ongoing management of your super fund, member benefits, and death benefits.

Appoint an Enduring Power of Attorney (EPOA)

Depending on your state’s regulations and specifications, you can appoint a trustee or director to manage your super fund. It’s important to check if your trust deed allows for you to have an EPOA. If not, we recommend that you have this amended accordingly.

Nominate more than one EPOA

It is possible to nominate more than one EPOA as a ‘back-up’ and added protection method to your SMSF. Often when a person allocates an individual trustee to their super fund, the first choice is the spouse. The only problem is if a spouse is around a similar age, they could too lose mental capacity. Therefore, appointing more EPOAs who are younger (e.g. children) offers extra protection to your SMSF.

Individual Trustee or Director of a Corporate Trustee

When nominating an EPOA it is important for you to know the difference between individual trustee management or corporate trustee management. Understanding the difference between these two structures will assist you with understanding which management option is best for you.

Individual Trustee Management structure includes:
  • Nominated individual people
  • At least two trustees, with a maximum number of four
  • Assets registered under the names of the trustees
  • Benefits: no ongoing corporate regulations and fees
  • Limitations: ATO penalties apply to individual trustees and problems with mixed personal assets often complicate things. A further disadvantage is the administrative costs associated with the change of individual trustee.


Corporate Trustee Management structure includes:
  • A company is nominated as the legal trustee
  • Maximum of four directors in a company
  • Assets registered under the company
  • Benefits: legal ownership of assets won’t change with the movement of directors. It’s the only option to manage your SMSF
  • Limitations: additional running expenses and you’re also bound by corporate legislation


Create an Investment Strategy

In the case that you lose mental capacity, it is good to have an investment strategy. This ensures your fund is being managed the way you would like it to. This would determine what should happen to your investments, management, actions if one of your EPOA loses mental capacity and the binding of all trustees.

Review, Update and Approve your Will

We highly recommend that you review and update your will to ensure you approve of the beneficiaries receiving your super fund money. This isn’t a topic people like to think about but it is important! Why? Because you cannot make any changes to your will once you lose mental capacity.


At Conrad Carlile, we are the Self-Managed Superfund specialists who can help you make the right decision. If you are open to discussing these options with one of our friendly team members, feel free to contact us or fill out an online form today!





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